29.9 C
Sunday, March 26, 2023

Crude Oil Prices Hijack Financial Market Headlines by Rallying over $139

Must read

- Advertisement -
- Advertisement -

Crude oil prices soared at the open in Asia, with Brent charging higher to trade slightly above $139 a barrel before slipping back below $130. The sharp appreciation was triggered by reports over the weekend that the US administration could potentially ban Russian oil imports with its European allies. Such a move to squeeze supply in an already tight market could propel oil prices to the 2008 high of $147.50 and beyond. While such a move will most likely hurt the Russian and European economies, the prospects of higher oil prices are good news for energy producers such as Nigeria.

Given how oil remains a major driver that continues to support Africa’s largest economy, the current developments may boost sentiment towards Nigeria in the short term. This is already being reflected in the Nigeria All-Share Index which is up almost 11% since the start of 2022. However, the full benefits of oil gaining over 60% year-to-date may not be felt by Africa’s largest economy given its poor infrastructure and sub-optimal oil production. On top of this, Nigeria exports crude but imports all by-products of the resource, including the motor spirit. With the country consuming more than it refines, it depends heavily on importations for its energy needs. Ultimately, rising oil prices may enforce more pressure on the tired Naira while revenues from oil sales are likely to be drained by fuel subsidies. The current fuel scarcity sweeping through the country also remains a cause for concern as road traffic intensifies.

Read Also: Crude Oil prices Slide 3% as Europe Expands Lockdown

Crude oil prices

On the data front, all eyes will be on Nigeria’s trade balance this week. Nigeria recorded a trade deficit of 448.2 billion Naira in September of 2021. According to the International Monetary Fund (IMF), Nigeria has failed to extensively diversify its export portfolio.

In regards to the Naira, the local currency depreciated against the dollar last Friday at N416.67. Given how the dollar continues to appreciate on the risk-off sentiment and rate hike expectations, this may pressure emerging market currencies including the Naira.

Outside of Nigeria, all eyes will be on the US inflation report on Thursday. The annual rate is set to rise to multi-decade highs at 7.8% with the core reading at 6.4%. Figures beyond 8% are certainly on the radar in the coming months, putting more pressure on the Federal Reserve and supporting the dollar.

In the commodities arena, gold pushed above $2000 for the first time in 19 months. The precious metal continues to draw strength from geopolitical risks and heightened levels of uncertainty. With bulls clearly in the driving seat, the path of least resistance for gold points north.

For more information, please visit: FXTM

By: Lukman Otunuga, Senior Research Analyst at FXTM

- Advertisement -
- Advertisement -

More articles


Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.

- Advertisement -

Latest article